Tax Mgmt Year Round Job

I was asked recently about a situation in which an investor had to sell stocks from his taxable account in order to meet a cash flow need; in this case, a down payment on a home.

He pointed out the “good news” half of his situation. Because the present value of the equities was well below the cost basis, he would have a realized loss. I inquired about the nature of that loss. Was it short term or long term? He responded that it was long term.

I explained that it’s a mistake, albeit one committed by many investors and even advisors, to treat tax managing as a seasonal event and check for losses only at the end of the calendar year. I pointed out that if you have tax losses in taxable accounts, you should almost always realize them whenever they are substantial. And you should also take them before they become long term, as they can be more valuable when they are short term.

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